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The definitions contained herein are for general information only and are not designed for use in connection with the interpretation of any insurance policy or annuity policy issued through Insurance Answer Center.
Life Insurance Glossary Terms  4 A B C D E F G H I J K L M N O P Q R S T U V W Y

Section 1035(a) Exchange

This is a tax-deferred transfer of the cash surrender value of an existing permanent life insurance policy to a new annuity or life insurance policy, or the transfer of an existing annuity policy to a new annuity policy, issued by the same or a different insurance company as provided under Section 1035(a) of the Internal Revenue Code. In order to effect a Section 1035(a) Exchange, the policyowner must complete an absolute assignment of all ownership rights of the old policy to the new insurance company before the new policy is issued. Generally, the entire cash surrender value must be transferred directly to the new policy without the original policyowner taking receipt of the funds to avoid paying taxes in the year of exchange. In the event that the policyowner takes receipt of the funds, before they are transferred to the new policy, the IRS usually considers any gain in the original life insurance or annuity policy to be taxable and any loss in the original policy non-transferable.

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